Orca improves economics at Block 14 in north Sudan

VANCOUVER —Avant-garde explorer Orca Gold (TSXV: ORG) has launched into a feasibility study at its 2.3 million oz. gold Block 14 project in northern Sudan’s Nubian Desert, after finding a water source that could support a larger open-pit operation than the company envisaged.

Orca intends to raise $15 million to fund the study along with 30,000 metres of drilling to expand the project’s Galat Sufar South and Wadi Doum gold deposits.

Orca would issue 37.5 million shares at 40¢ per unit, with each unit consisting of a share and half a warrant that can be exercised in the first year at 55¢ per warrant.

Sudan is in the midst of a gold rush, with some 1.5 million artisanal miners by some counts producing over 93 tonnes gold (3 million oz.) last year, which would suddenly place Sudan as Africa’s third-largest gold producer behind South Africa and Ghana.

“The amount of gold they’re producing is pretty impressive, considering there are no modern gold mines in the country,” Orca president Hugh Stuart tells The Northern Miner during a phone interview. “The amount and extent of artisanal mining really shows you the nature of the gold endowment.”

Orca’s story begins in 2012, when Lukas Lundin and Richard Clark, former CEO of Lundin’s Red Back Mining, ventured into northern Sudan, eager to explore its prolific greenstone belts. The pair had both been involved in Red Back’s US$7.1-billion takeover by Kinross Gold (TSX: K; NYSE: KGC) two years before, and saw an opportunity to duplicate the success in Africa’s northeast.

Once identifying enough targets at Block 14, Clark reassembled the former Red Back team and in 2013 spun the project into Orca — then Canaco Resources.

The first drill hole on the property hit 59 metres of 2.67 grams gold at 26 metres depth, followed by a 26-metre interval grading 2.48 grams gold from 94 metres depth.

Stuart — who had been Red Back’s vice-president of exploration — argues Sudan is the most geologically prospective country in Africa.

“There are few places left in the world where modern exploration hasn’t had a good go, and Sudan is one of them. It’s got fantastic rocks, yet it’s barely been touched. From a purely technical point of view, it’s a no-brainer to explore there,” Stuart says.

Orca has outlined 11 targets across its 2,170 sq. km land package, but most of the drilling has focused on building resources at Galat Sufar South and Wadi Doum.

Stuart says that in its preliminary economic assessment (PEA) completed in July 2016, Orca took a conservative approach to development at Galat Sufar South and Wadi Doum, citing limited access to water.

“We’re in a desert, a couple of hundred kilometres from the river Nile, so water is key if we want to develop this project,” he says. “At the time of the PEA, we had a water source 55 km north of the proposed plant site, but we didn’t want to get too optimistic about it. As time went on, it became evident that the project could get bigger if we discovered a new water source.”

Orca Gold’s camp at the Block 14 gold project in Sudan, near the Egyptian border, 900 km north of the capital Khartoum. Credit: Orca Gold.

Stuart says the company was aware of a historic well to the west of the property, drilled in the 1890s when British and Egyptian forces occupied the country. Orca flew extensive geophysical surveys over the area and identified a large, freshwater aquifer — at least 60 sq. km in size — from borehole drilling.

“Hitting that aquifer was a big game changer for the project,” he says. “It carries a significant effect on increasing throughput rates and lowering operating costs. We’ve also steepened up the pit slopes enabling the resource to go much deeper.”

On May 30, the company released the news of the aquifer discovery alongside a revised PEA, which increased the throughput rate of the envisaged open-pit operation from 1.8 million tonnes per year to 3.4 million tonnes.

The new mining scenario triggered a 78% hike in the project’s after-tax net present value, which now stands at US$227.7 million, assuming a 7% discount rate. The internal rate of return increased slightly to 23.1% from 22%, whereas payback on the US$210.6-million capex dropped to three years from four.

Open-pittable resources at Galat Sufar South and Wadi Doum now stand at 41 million indicated tonnes of 1.46 grams gold, and 3.4 million inferred tonnes of 1.56 grams gold.

“The economics have become a lot more significant. It has given us the incentive to pursue feasibility studies and chase some of the higher-grade targets to greater depths,” Stuart says.

The feasibility study, which Orca expects to finish early next year, isn’t the only benchmark on the horizon.

On July 12, U.S. President Donald Trump’s administration may permanently remove a 20-year economic embargo on Sudan. The sanctions were temporarily lifted in January under the Obama administration, giving the Sudanese government six months to improve its human rights record and resolve political and military conflicts.

“Obama gave them six months to essentially be good citizens, and they’ve been working really hard to get back into the West’s good books,” Stuart says.

For Orca, Stuart says that a lift in U.S. sanctions could bring more U.S. investment into the project.

“If the sanctions are permanently lifted, anybody is free to do business there, including bankers,” he says. “In the past, we’ve focused on the Gulf states rather than North America when it came to lining up finances for the mine. So if it does happen, it would open up a lot more opportunities for us.”

Shares of Orca have traded in a 52-week range of 28¢ to 55¢ per share, and closed at 38¢ at press time. The company has 113.3 million shares outstanding for a $42-million market capitalization.

Lukas Lundin has an 18.7% stake in the company, whereas other major shareholders in Orca include mining entrepreneur Ross Beaty at 11.8% and Kinross at 8.6%.